Corn is the Latest Commodity to Pop

Source: By Ryan Dezember and Kirk Maltais, Wall Street Journal • Posted: Monday, May 10, 2021

Prices for corn have risen 50% in 2021 and a bushel costs more than twice what it did a year ago

Corn was harvested on an Iowa farm in September. The commodity’s price is climbing toward a record high. Photo: Jack Kurtz/Zuma Press

America’s biggest cash crop has rarely been more expensive. Corn prices have risen 50% in 2021 and a bushel costs more than twice what it did a year ago.

Corn has been one of the sharpest risers in the broad rally in raw materials that is prompting companies to boost prices for goods and fueling concern among investors that inflation could hobble the post-pandemic economic recovery.

Lumber prices have shot to more than four times what is typical, pushing up home prices and obliterating renovation budgets. Copper, a cog of industry found throughout the home and in electronics, hit record prices Friday. Crude oil hasn’t cost so much since 2018 and soybeans are trading at their loftiest level since 2012.

With corn climbing toward a record high, Americans can expect to pay more for all sorts of items at the grocery store as well as at the gasoline pump. Corn is a key ingredient in making products ranging from tortilla chips and chicken wings to bourbon and Coca-Cola. About 40% of the U.S. crop is blended into motor fuel.

Analysts say high corn prices are lifting makers of fertilizer and farm equipment while helping consumer products and food companies justify their own price increases. U.S. farmers, who are seeding fields for a big autumn harvest, are also benefiting.

Bushels for delivery this month ended Friday at $7.73, the highest since 2012, when drought withered the Midwest crop and pushed prices to a record of $8.31.

More actively traded futures for December delivery, a price gauge for the crop being planted between western Ohio and North Dakota, ended Friday at $6.365 a bushel.

Farmers have a few factors to thank for high prices.

China is on a corn-buying binge while racing to fatten millions of hogs to replace the pigs it had to kill during an outbreak of African swine fever before the pandemic. China is expected this year to import about four times what it normally buys from abroad, most of it from U.S. farmers.

Corn-growing regions of South America are parched. Brazil expects a meager safrinha, or second crop, which will reduce its export. In Argentina, the Paraná River is too shallow for fully loaded boats to pass from the country’s interior to Atlantic shipping lanes.

At home, the reopening economy means more drivers and greater demand for the corn that becomes ethanol and is blended into gasoline.

On Wall Street, new trading rules allow speculators to make larger bets than ever on agricultural commodities while exchange operator CME Group Inc. this month widened by 60% the threshold for daily price swings in corn futures.

Investors have pumped money into commodities, a popular move aimed at offsetting inflation risk elsewhere in their portfolios. Open interest in agricultural commodity futures, a measure of trading activity, rose last month to a record $315 billion, according to JPMorgan analysts.

David Martin, chief investment officer with Martin Fund Management, said the New York commodity trading firm began placing bullish bets on corn prices last fall and is currently trading derivatives with an eye toward even higher prices. “If the weather isn’t pristine…there’s going to be massive shortages,” he said.

Wagers that corn prices will rise—by hedge funds and other speculators—outnumber bets on a decline 17 to 1, according to the Commodity Futures Trading Commission data.

Near-term corn prices that are much higher than those later in the year are unusual and indicate a market short on supply, analysts and traders say. Grain elevators in Iowa, Oklahoma and elsewhere are offering premiums to futures prices, according to trading firm StoneX Group Inc.

“The market is basically telling farmers and elevators and anyone else who stores grain to sell. Sell now,” said Craig Turner, a commodities broker at Daniels Trading in Chicago.

U.S. farmers are holding back a lot of corn in hopes of even higher prices, said Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc.

There hasn’t been a big corn rally in years, and when prices have risen it is usually because of poor harvests.

Some farmers are hoping to make up for losses sustained when they sold low during last year’s market panic. Others are flush with subsidies showered on growers during the trade war with China and can afford to gamble, said Peter Meyer, head of grains and oilseeds analytics at S&P Global Platts.

“Rather than pick a high, what I’m trying to do this year is give clients a window where we think selling will finally enter the market because there’s no selling in the market at the moment,” Mr. Meyer said.

Nick Ehlers, who splits his 3,000 acres in eastern Iowa between soybeans and corn, has been hanging on to some of last year’s corn harvest, which was diminished by a derecho windstorm, and has hardly sold any of his current crop. He’s plotting options trades that would set a price floor for his corn while enabling him to capture higher prices.

“Usually we have a rally on weather in July,” he said.

Write to Ryan Dezember at ryan.dezember@wsj.com and Kirk Maltais at Kirk.Maltais@wsj.com

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